'Buy' Yes Bank on favourable risk-reward: Deutsche Bank

SummaryWe think perception regarding Yes Bank will improve, as liquidity conditions are improving, economic indicators are turning positive and with the bank having navigated the tough environment fairly well thus far.

We think perception regarding Yes Bank will improve, as liquidity conditions are improving, economic indicators are turning positive and with the bank having navigated the tough environment fairly well thus far. We believe that whenever the bank raises capital, it will improve valuations.

Yes Bank has done well to improve its Casa franchise, retail fees & distribution network, which have not been well appreciated. The stock is trading at 1.6x FY15E PBR for a likely 23% RoE. We see the maximum upside in Yes Bank in the event of a favourable political outcome in the upcoming elections. It remains one of the better risk-reward trades. ‘Buy’ with a target price of R500.

Yes Bank has managed most of its business concerns over the last 15 months fairly well: (a) highly volatile liquidity conditions have had only a marginal impact on its NIM and treasury book; (b) NPLs have risen somewhat but, with a 0.4% gross NPL, this is still the best-in-class, and it has built up a floating provision of 0.4% of loans; (c) it has slowed its growth and shed risks over the last 12 months; (d) it has continued to improve its Casa franchise, with SB accounts growing from 6% of deposits to 11% and retail deposits from 37% to 42% over last seven quarters.